Janet McFarland comments that internal managers are cheaper than external managers. One important fact is missing from her analysis. She says that, "Canada's nine largest public pension funds earned an average annual return of 5.5 per cent over the past 10 years while data from eight top U.S. public pension funds shows an average annual return of 3.2 per cent." What she fails to mention is that Canada's stock market, as measured by the TSX 300, earned 3.39 per cent for the 10 year period ended December 31, 2009, while the U.S. market, as measured by the S&P 500, lost 2.72 per cent per year!
Most pension funds, especially those in Canada, have a home country bias, thereby investing a higher than normal percentage of their assets in their home country.
By simply investing in Canada, the Canadian pension funds have earned higher returns. It's simply a case of a "rising tide lifting all boats".
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